Archive for 'GDP'

Investing in Gold Using Correlations? Beware

Gold

The Markets are just too complex to base your trading on only one set of rules, for example if “X” happens then you should invest in “Y”. There’s always more to it when it comes to being a successful investor. So, if one so called investment expert says that if the GDP is heading down, you should buy Gold. Uh, maybe… 

Of late, I have seen many articles postulating what moves gold up or down. We have heard all the old reasons being put forth from GDP, to a hedge against market volatility to interest rates, to the US Dollar, and many more. Unfortunately, market history simply does not support these reasons as a consistent driver of gold, as I have detailed in many past articles:

In fact, a recent article on gold suggested that “[w]e all know that gold is negatively correlated to GDP growth.” Well, since gold rose between 2000-2008, and as you can see from this attached chart that REAL GDP did as well, are we really sure that we “all know that gold is negatively correlated to GDP growth?”

In fact, take note that the stock market also rose strongly during this same period of time. Moreover, I have seen many other charts presented which offer no evidence that there is any real relationship between gold and GDP.

I have discussed this many times in the past. Correlations cannot be wholly relied upon unless you understand when those seeming correlations will end. And, since most correlation analysis does not present any indication of when those correlations will end, they are no better than using a ruler to determine your projections for any chart.

Such linear analysis will be of no use in determining when a change of trend may occur. And, one does not need such analysis to assume the current trend for anything will continue. In fact, this is likely why so many intra-market analysts have done so poorly in the last 5 years as they failed to see the coming break down in the correlations they follow (even though we were warning about these impending break downs back in 2015).

Price pattern sentiment indications and upcoming expectations

For those following us for the last six years, you would remember that we were not only accurate in our assessment for a top being struck in the metals complex in 2011, but we were also accurate in our assessment for a bottom being struck at the end of 2015.

Since that time, the market has provided us with what looks like a very nice 5-wave structure off the 2015 low, followed by a corrective pullback. Now, when I see a larger degree 5-wave structure (wave 1) being made off a multi-year bottom, followed by a corrective pullback (wave 2), I am on alert for the heart of a 3rd wave to take hold. And, in the metals complex, those are quite breathtaking rallies. For this reason, I have erred on the bullish side of the market as the market was looking like it was setting up for that 3rd wave in 2017.

However, rather than providing us the 3rd wave rally for which I was seeking confirmation, 2017 has been exceptionally frustrating as the market has invalidated several set-ups for that major 3rd wave break out.

Yet, when presented with the same opportunities on any chart, I would have probably reacted in the exact same fashion. Most of the time, the market will follow through on such set ups, while in a minority of circumstances we would see the market continue on a much larger degree 2nd wave pullback. Clearly, the market has decided that 2017 was going to be a year of consolidation.

Even though we have not had the 3rd wave break out, we have not yet broken any of the lows we identified throughout the year. And, for those that have heeded my warnings about not using leverage until the market proved itself to be within its 3rd wave, you could have still made money on each of these rallies. In fact, the GDX is approximately 10% over the lows we identified this year, even though it may not “feel” that way due to the frustration we have all felt with this current consolidation.

 However, as I have been warning for the last few weeks, the GDX may be signaling it could break below those pullback lows we have struck this year. But, much depends on how high the rally I am expecting in the complex takes us.

If the GDX is able to make a higher high in the 26 region in the coming weeks, then it leaves the door open that green wave (2) may not break below the July lows. However, if the market is unable to develop a higher high over that struck in September, and then breaks below the low made before the current rally began, it opens the door to the GDX dropping down towards the 17 region before year end to complete a much more protracted wave ii, as presented in yellow on the daily GDX chart.

My preference still remains that GDX, silver and GLD all make a higher high in the coming weeks, which would put a more bullish stance upon the complex (even though another drop will likely take us into the end of the years), I really have nothing to which I can point that would suggest this will occur within a high degree of probability.

So, I have turned extremely cautious of the complex, at least until it proves itself with a higher high being struck in the coming weeks. Until such time, I am going to be more protective of my positions.

And for those who are still viewing this market from an extremely bullish perspective, I will be honest with you and tell you that I do not see any high probability set-up which would suggest the market is going to imminently break out in the heart of a 3rd wave just yet.

For this reason, I think that one can maintain a certain amount of patience (as if 2017 has not forced you to be patient enough), as even if we see a rally to a higher high, it will likely be followed by another pullback (as a wave (2) in GDX and a c-wave in GLD and silver) before we are finally ready to break out over the 2016 market highs.

More on Gold Investing

 

Poor Economy to Blame for Our Financial Stress

Health of Average Household Budget Declines For Six Consecutive Quarters

CredAbility, one of the leading nonprofit credit counseling and education agencies in the United States, today released the CredAbility Consumer Distress Index results for the 2010 fourth quarter. The Index, a quarterly measure that tracks the financial condition of the average US household, found that rising stock prices helped propel growth in consumers’ net worth. But lower scores in three of the index’s other four categories — employment, housing and household budget – drove down the overall index. The health of household budgets declined each quarter in 2010 and is at the lowest level since the first quarter of 2009.

For the quarter ended December 31, 2010, American households scored a 64.3 on the Index’s 100-point scale, down slightly from 64.4 in the third quarter of 2010. For all of 2010, the index showed a small improvement, moving up from a score of 63.9 in 2009’s fourth quarter.

A score below 70 indicates a state of financial distress.  The average US consumer has been in financial distress for 10 consecutive quarters, according to the Index.  The last time the index was above 70 was in the second quarter of 2008.

According to the index, the 10 states ranked as the most financially distressed account for nearly 33 percent of the nation’s Gross Domestic Product. These states include California and Nevada in the West; Michigan and Indiana in the Midwest and Florida, Georgia, Alabama, North Carolina, South Carolina and Mississippi in the Southeast.

While US Gross Domestic Product (GDP) increased 3.2 percent in 2010’s fourth quarter, the CredAbility Consumer Distress Index indicates that the increased economic activity has not yet helped many Americans.

“The increase in the GDP in the fourth quarter and 2010 has not yet translated into improved financial health for many average American families,” said Mark Cole, CredAbility’s chief operating officer and the executive responsible for the CredAbility Consumer Distress Index.

“Improved stock prices have increased the value of 401(k) and other investment accounts in the average US household, but high unemployment continues to stifle income growth, causing many homeowners to miss mortgage payments,” Cole said. “While an increase in consumer spending helped the economy in the fourth quarter, the index showed that an increasing number of people failed to prudently manage their household budgets. This lack of savings could cause financial problems if they need to rely on their savings in the future.”

Based on the index’s data, Cole said that a tale of two different American families is developing in America. “The family with one or two stable jobs is seeing their investments grow again and is beginning to spend more of their household income,” he said.  “But families that have lost a job or seen other income sources reduced, and who don’t have enough income to invest, have experienced increased financial distress.

“Unfortunately, millions of families are in the second category. In 2010, approximately 14.8 million people ended the year unemployed, more than 1 million families lost homes to foreclosure and 43.6 million Americans used food stamps to buy groceries.”

For the second straight quarter, Michigan posted the worst score on the Index with a 58.83. To see a detailed explanation of how the Index works and a national map, go to www.CredAbility.org/ConsumerDistressIndex. A link to the Index will also be posted on the CredAbility Twitter account, which can be found at http://twitter.com/CredAbility

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Other highlights from the fourth quarter index include:

o       Seven states, led by North Dakota (79.35) and South Dakota (76.94), scored above the distress threshold of 70 points.  Others were Nebraska (74.84), Wyoming (74.09), New Hampshire (72.3), Vermont (71.3) and Iowa (70.05).
o       Seven more states and the District of Columbia are within two points of moving out of financial distress. These states are Massachusetts, Minnesota, Montana, Virginia, Utah, Connecticut and Colorado.
o       Among the most distressed states, Nevada moved from No. 6 to No. 3 and Florida moved from No. 7 to No. 5. For the first time in 2010, North Carolina moved into the top 10 most distressed states at No. 9.
o       Some states’ level of distress improved during the past quarter. Indiana, which had ranked as the No. 5 most distressed, is now No. 7. Ohio, which had ranked No. 8, is now No. 11.

Fourth quarter Index data by state:

Q4 2010 Q3 2010 Q2 2010 Q1 2010 Q4 2009
National        64.32%  64.40%  65.23%  65.04%  63.96%

States
Michigan        58.83%  58.11%  61.01%  60.69%  60.47%
Mississippi     59.24%  58.76%  60.62%  60.57%  60.69%
Nevada  59.27%  60.71%  59.23%  59.16%  59.56%
Alabama 60.03%  60.23%  61.89%  61.60%  61.46%
Florida 60.21%  60.81%  61.01%  60.70%  60.48%
South Carolina  60.56%  60.10%  61.29%  60.63%  60.09%
Indiana 61.16%  60.68%  62.61%  62.27%  61.74%
Georgia 61.26%  61.24%  61.37%  61.24%  61.13%
North Carolina  61.38%  61.66%  62.28%  62.11%  61.53%
California      61.39%  61.31%  61.71%  61.36%  61.29%
Ohio    61.41%  60.83%  63.06%  62.60%  62.18%
Tennessee       61.53%  61.54%  62.26%  61.72%  60.97%
Kentucky        61.63%  61.72%  63.38%  62.83%  62.03%
Rhode Island    62.29%  62.57%  63.70%  63.33%  63.20%
Missouri        62.78%  62.43%  64.62%  64.37%  63.97%
West Virginia   63.76%  63.22%  64.50%  64.11%  63.39%
Arkansas        63.79%  63.94%  65.73%  65.24%  64.54%
Illinois        63.79%  63.01%  64.66%  64.45%  64.43%
Arizona 63.81%  63.98%  62.05%  61.75%  61.62%
Louisiana       64.00%  65.07%  67.64%  68.13%  68.59%
New Mexico      64.74%  65.35%  65.72%  65.64%  65.42%
Maine   64.80%  64.29%  66.04%  65.78%  65.46%
Washington      64.99%  64.88%  65.60%  65.59%  65.71%
Pennsylvania    65.07%  65.23%  66.99%  66.92%  66.61%
Delaware        65.23%  65.53%  66.96%  66.34%  66.00%
Hawaii  65.40%  65.51%  68.65%  67.96%  67.84%
Oregon  66.04%  65.88%  64.66%  64.29%  63.72%
Texas   66.07%  66.48%  65.89%  65.82%  65.36%
New York        66.25%  66.61%  67.79%  67.45%  67.35%
New Jersey      66.47%  66.44%  67.67%  67.42%  67.40%
Idaho   66.54%  67.28%  65.11%  64.51%  64.48%
Wisconsin       66.91%  66.27%  68.05%  67.48%  66.59%
Maryland        67.33%  67.58%  68.94%  68.94%  68.89%
Kansas  67.77%  68.41%  70.26%  69.79%  69.29%
Alaska  67.82%  67.31%  70.70%  70.68%  70.70%
Oklahoma        67.98%  66.88%  68.63%  69.02%  69.10%
Colorado        68.16%  68.23%  68.34%  68.31%  68.15%
Connecticut     68.29%  68.20%  69.23%  69.04%  68.96%
Utah    68.38%  68.58%  67.65%  67.79%  68.15%
Virginia        68.41%  68.50%  69.30%  69.16%  69.21%
Montana 69.20%  69.28%  69.51%  69.99%  69.75%
District of Columbia    69.31%  68.55%  64.64%  66.07%  65.72%
Minnesota       69.38%  69.30%  69.75%  69.01%  68.14%
Massachusetts   69.58%  68.96%  68.37%  68.18%  68.08%
Iowa    70.05%  69.91%  71.40%  70.97%  69.98%
Vermont 71.32%  70.88%  72.05%  71.63%  71.07%
New Hampshire   73.30%  72.77%  70.64%  69.26%  69.07%
Wyoming 74.09%  72.54%  72.80%  72.83%  72.76%
Nebraska        74.84%  74.87%  76.09%  75.47%  74.20%
South Dakota    76.94%  76.19%  77.43%  77.21%  75.62%
North Dakota    79.35%  79.45%  78.95%  78.89%  79.25%

About the CredAbility Consumer Distress Index
Published quarterly, the CredAbility Consumer Distress Index uses a proprietary methodology that draws upon multiple data sets. Employment, housing, credit, household budget and net worth information is supplemented with data collected by CredAbility, which serves more than 638,000 financially distressed individuals each year.

About CredAbility
CredAbility is one of the leading nonprofit credit counseling and education agencies in the United States, serving clients in all 50 states plus the District of Columbia, Guam, Puerto Rico and the US Virgin Islands, in both English and Spanish. In addition to providing counseling via telephone and internet, CredAbility operates a network of 28 branch offices across the southeast.

Founded in 1964, CredAbility is a family of Consumer Credit Counseling Service agencies that includes CCCS of Greater Atlanta, CCCS of Central Florida and the Florida Gulf Coast, CCCS of Palm Beach County and the Treasure Coast, CCCS of East Tennessee, CCCS of Jackson (Mississippi) and CCCS of Upstate South Carolina.

The nonprofit agency is accredited by the Council on Accreditation and is a member of the Better Business Bureau and the National Foundation for Credit Counseling (NFCC). Governed by a community-based board of directors, CredAbility is funded by creditors, clients, individual donors and grants from foundations, businesses and government agencies. Service is provided 24/7 by phone at 800.251.2227 and online at www.CredAbility.org.

Media Contacts

Scott Scredon
404.653.8833 office
770.315.0745 cell
Scott.Scredon@CredAbility.org

John McCosh
404.260.3108 office
404.272.0010 cell
John.McCosh@CredAbility.org